MAMTA MEHTA,MUMBAI vs. INCOME TAX OFFICER WARD 31(2)(3), MUMBAI

Since the issues in these appeals are common and identical, hence are clubbed, heard and consolidated order is passed.

The brief facts of the case are that the assessee is an individual and is engaged in the business and derives income from business, capital gains and income from other sources. The assessee has filed the return of income for the A.Y 2011-12 on 12.12.2011 disclosing a total income of Rs. 2,35,452/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the Asssessing Officer (A.O.) has received information from DGIT(Inv), Mumbai that the assessee has obtained accommodation entries of long term capital gains of shares in the F.Y 2010-11, therefore the AO has reason to believe that the income has escaped assessment and issued notice u/s 148 of the Act. In compliance to notice, the assessee has filed the details in the hearing proceedings. The AO on perusal of the facts found that the assessee has earned long term capital gains of Rs.1,11,39,648/- and has claimed exemption u/s 10(38) of the Act. The AO has dealt exhaustively on the facts in respect of the transactions and the assessee has filed the explanations to show cause notice on 20.12.2012 referred at Para 7.2 of the assessment order, whereas

Subsequently the AO has initiated penalty proceedings u/s 271B of the Act as the assessee has failed to get the books of accounts audited as the turnover exceeds prescribed limit under the provisions of Sec. 44AB of the Act. The A.O. has issued notice u/s 274 r.w.s 271B of the Act dated 10.12.2018 and the assessee has filed the detailed explanations on 30.01.2019 mentioning that the penalty should not be levied as the assessee has suffered loss on derivatives trading under the head income from business and the assessee was under the bonafide belief that loss on derivatives is not subject to taxed audit u/s 44AB of the Act and therefore no tax audit was carried out and penalty is always a discretionary and not an obligatory or mandatory. The Ld. AR relied on the judicial decisions and supporting the facts that the imposing the 1861/Mum/2021 Mamta Sundeep Mehta, Mumbai. - 5 - penalty is not obligation and cannot be automatic. The A.O. was not satisfied with the explanations and levied a penalty Rs.65,795/- and passed the order U/sec271B of the Act dated 28-06-2019.

Aggrieved by the penalty order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the penalty proceedings but has confirmed the levy of penalty and dismissed the assessee appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal before the Hon’ble Tribunal.

We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue that the CIT(A) has erred in confirming the Levy of penalty U/sec271B of the Act. The Ld.AR contentions are that the penalty should not be levied as the assessee has suffered loss on derivatives trading under the head income from business and the assessee was under the bonafide belief that loss on derivatives is not subject to tax audit u/s 44AB of the Act and therefore no tax audit was carried out and penalty is always a discretionary and not an obligatory or mandatory and relied on the judicial decisions. The Ld.AR submitted that the asssessee has started the business of dealing in shares & securities in the F.Y.2010-11 and being the first year of business in futures and options and incurred loss of Rs.21,14,173/- and the assessee was under the bonofide belief that due to loss in trading there is no need to get the books of accounts audited under 1861/Mum/2021 Mamta Sundeep Mehta, Mumbai. - 7 - sec44AB of the Act and further the assessee has not claimed the loss in the income tax return filed. We considering the facts, circumstances and the ratio of the judicial decisions enumerated in the course of hearing find that the asssessee was under bonofide belief that the transaction volume was not to be included for the purpose of determining the obligation of Tax Audit under section 44AB of the Act and same constitute a reasonable cause for not getting the books of accounts audited U/sec44AB of the Act and the default committed in not getting the Audit report is without any malafide intentions on the part of the asssessee. Accordingly,we set aside the order of the CIT(A) and direct the Assessing officer to delete the penalty and allow the grounds of appeal in favour of the assesse.

As the facts and circumstances in this appeal are identical to A.Y 2011-12 (except variance in figures) and the decision rendered in above paragraphs would apply mutatis mutandis